Recursion Pharmaceuticals Rises 6% in a Month: How to Play the Stock

Recursion Pharmaceuticals RXRX shares have gained 5.5% in a month. The stock gained momentum after the company announced the acquisition of Rallybio’s full stake in their joint venture earlier this month for developing REV102 and a backup candidate for hypophosphatasia (HPP), a rare genetic disorder. The partnership, launched in 2019, leveraged Recursion Pharmaceuticals’ AI-powered Recursion OS (developed with NVIDIA) to identify ENPP1 as a therapeutic target, leading to the creation of REV102, a promising oral ENPP1 inhibitor with high potency and safety for chronic use.

By securing full ownership, Recursion Pharmaceuticals can now independently advance the program, aiming to deliver the first oral, disease-modifying treatment for HPP. Under the deal, RXRX will pay Rallybio $7.5 million upfront in equity, $12.5 million in contingent equity tied to preclinical progress, and another $5 million upon initiating dosing in an early-stage clinical study. Rallybio will also earn low single-digit royalties on future sales and may receive additional payments if the program is sold.

The promising pipeline update comes on the heels of a major setback in May 2025 that had significantly shaken investor confidence in the company. Recursion Pharmaceuticals discontinued the development of three key drug candidates — REC-994, REC-2282 and REC-3964 — due to disappointing results from mid-stage studies. REC-994 and REC-2282 were being developed for cerebral cavernous malformation and neurofibromatosis type II, respectively, but showed insufficient efficacy to justify further investment. Similarly, REC-3964, for Clostridioides difficile infection, was also shelved as the company opted to focus on areas with greater unmet needs. The move was part of a broader strategic pipeline reprioritization.

Year to date, RXRX stock has plunged 20.3% compared with the industry’s 1.9% decline. The company has also underperformed the sector and the S&P 500 during the same time frame, as seen in the chart below.

RXRX Stock Underperforms the Industry, Sector & the S&P 500

However, Recursion Pharmaceuticals’ solid fundamentals and the promising potential of Recursion OS make us believe that the stock could deliver multi-bagger returns in the future. Let’s dig deeper and understand the company’s strengths and weaknesses in greater detail to understand how to play the stock going forward.

RXRX’s Potential to Revolutionize the Drug Development Process

Recursion Pharmaceuticals aims to shift the paradigm of drug discovery and development, which has historically been complex, costly, and prone to failure. Traditional biotech companies rely on a “trial-and-error” approach, leading to significant cash burn during early research and development. The high failure rates and funding challenges often result in financial instability or bankruptcy, hindering progress in the sector.

In contrast, Recursion Pharmaceuticals leverages AI-powered models to test clinical compounds against a virtual library of human biology, hoping to identify promising candidates with higher probabilities of success in clinical development. This approach could reduce research costs, improve efficiency, and allow the company to deliver breakthrough therapies at lower prices. Additionally, it can generate incremental revenues by licensing its AI platform to other drug makers, as demonstrated by its collaborations with Merck, Bayer BAYRY, Sanofi SNY and Roche RHHBY. Even when candidates fail in clinical studies, Recursion Pharmaceuticals could use the resulting data to refine and enhance its AI models, improving accuracy and long-term outcomes.

RXRX’s Retained Pipeline Demonstrates Potential

As part of its strategic pipeline reprioritization efforts, Recursion Pharmaceuticals has shifted its focus and resources to the development of other candidates in its clinical pipeline. Such candidates include REC-4881, which is being developed for familial adenomatous polyposis in a phase Ib/II TUPELO study. A data readout from the study is expected in the second half of 2025.

Beyond REC-4881, Recursion Pharmaceuticalsis advancing other candidates to diversify and strengthen its pipeline. These include REC-1245, currently in a phase I/II DAHLIA study for biomarker-enriched solid tumors and lymphoma, with initial results anticipated in the first half of 2026. The company is also exploring REC-617 for advanced solid tumors and REC-3565 for B-cell malignancies in separate early-stage studies. The company ended first-quarter 2025 with a cash balance of $509 million, which is expected to fuel operations into mid-2027 based on its current business plan.

Additionally, Recursion Pharmaceuticalshas ongoing collaboration agreements with pharma giants like Roche, Bayer, Merck and Sanofi to develop candidates for several oncology indications with differentiated mechanisms of action. RXRX recently received $7 million in collaboration revenues from Sanofi, following the achievement of a significant discovery milestone.

Competitive Pressure and Pipeline Risks Cloud RXRX’s Outlook

Recursion Pharmaceuticals faces intense competition from biotech firms, tech-driven drug discovery companies, and pharmaceutical giants, all leveraging computational tools and scalable platforms. Rivalry from companies like Relay Therapeutics, Isomorphic Labs, and even tech giants like Alphabet and Microsoft could challenge RXRX’s ability to differentiate itself and sustain its competitive edge.

Investors are also apprehensive of the company’s pipeline potential as its investigational candidates are still in the early stages of development and far from commercialization. There are chances that it will not have a product in the market for at least three to four years.

RXRX’s Discount Valuation & Mixed Estimate Movements

Recursion Pharmaceuticals is trading at a discount to the industry, as seen in the chart below. Going by the price-to-book value ratio, the company’s shares currently trade at 2.35, which is less than 3.08 for the industry. The stock is trading significantly below its five-year mean of 3.56.

RXRX Stock Valuation

Loss estimates for 2025 have remained constant at $1.34 per share over the past 60 days. During the same time frame, RXRX’s 2026 loss per share estimates have narrowed from $1.17 to $1.08.

RXRX Estimate Movement

Here’s How to Play RXRX Stock

Recursion Pharmaceuticals, currently carrying a Zacks Rank #3 (Hold), has a first-mover advantage in AI-driven drug discovery, which positions it as a leader in the space, with a strong pipeline focused on Precision Oncology and Rare Diseases. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The successful development and approval of its pipeline candidates would validate its AI platform and significantly enhance shareholder value.

We believe that the recent volatility in the stock is a temporary affair. As clinical studies of its reprioritized portfolio of candidates advance successfully, existing investors may benefit from holding Recursion Pharmaceuticals stock for potential multi-bagger returns in the future. The company’s recent discounted valuation presents an attractive entry point for new investors looking to build a position and capitalize on its long-term growth potential. However, given the stock’s volatility and dependence on external partnerships, investors with a low appetite for risk may find it prudent to avoid exposure.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research